CA Pallav Shah

Cost Accounting

Basics of

Cost Accounting

BY
CA PALLAV SHAH

CA Pallav Shah

Cost Accounting

CHAPTER 1
COST ACCOUNTING
INTRODUCTION

1. Needs of costing in the field of business?

Costing is a branch of accounting. It helps us to classify, record, and allocate the expenditure
for the determination of costs of product. Expenditure involved in business has to be
ascertained to fix the price of a product produced. The expenditure is to be understood in terms
of material, labour and other direct and indirect expenses. The major purpose of such
classification is to estimate the profit and to understand its relationship with costs and price.
The three elements of a transaction i.e., cost, profit and price are necessary components of any
business activity.
Example:
A mobile phone factory introduces a new device. The factory incurs Rs. 400 for
material, Rs.400 for labour and Rs.200 for overhead on every mobile phone produced
and supplied in the market. The total cost comes around Rs.1000. If the price of the
device is Rs. 1500, the profit per device is Rs. 500 (1500-1000).
The management requires all information as seen in the example for each product produced.
The above estimation is done for the purpose of planning, cost control and decision-making. The
existing system of financial accounting does not provide the necessary information to do similar
estimation. Such deficiency of financial accounting has given rise to the need of cost
accounting.
2. Define cost accounting.
The word Costing refers to the technique and process of ascertaining costs. There have been
certain rules and principles in the field of costing developed over years by our forefathers.
These rules and principles help us to ascertain the cost of products produced. The term 'Cost
Accounting refers to the recording of all incomes and expenditures and ends with the
preparation of periodical statements and reports for ascertaining and controlling costs.
Definitions of Cost Accounting.
According to the Terminology used by the Institute of Cost and Management
Accountants, Cost accounting is the part of management accounting which establishes
budgets and standard costs and actual costs of operations, processes, departments or
products and the analysis of variances, profitability or social use of funds.

3.

Define the term cost.

The terms Cost and expenditure are used interchangeably to mention same thing in the field
of business. Cost means the amount of expenditure incurred on, or attributable to, a given
thing.
According to the committee on Cost Concepts and Standards of the American
Accounting Association, Cost is foregoing, measured in monetary terms,
incurred or potential to be incurred to achieve a specific objective

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Cost Accounting

It may be an actual cost or estimated expenditure. It also indicates a direct or indirect

expenditure. It is also related to job, process, product or service. Examples of costs are
material, labour, factory overhead, administrative overheads, and selling and distribution
overheads.
4.What are the difference between financial accounting and cost accounting?
Both accounting are complementary to each other. Preparation of both accounts is helping the
organisation to the smooth running of the business. The difference between Cost Accounting and
Financial Accounting is given below:

Cost Accounting

5.

Financial Accounting

1) It helps us to ascertain the cost of goods

produced.

It helps us to know operational results

and financial position of business.

2) It provides required information to the

management.

It provides information parties involved

in business internally and externally.

3) It need not be followed by a system of

external audit

Audit is a statutory obligation

4) It classifies the costs into material,

labour, fixed overhead and variable
overhead.

Transactions are divided into debit and

credit terms.

5) Cost sheet is main format of cost

accounting

Trading and Profit & Loss Account and

Balance Sheet are two consolidated
financial statements.

6) It does not form a basis for tax

assessment.

It forms a basis for deciding the tax

liabilities of the business.

7) Variance analysis is to identify the

favourable and adverse difference
between standard cost and actual cost.

It records only actual transactions

occurring in the course of business
operations

8) Cost accounting facilitates the

presentation of cost information at
regular intervals.

Financial statements are annually

presented.

9) Profit or loss is estimated on specific

product, branch, department or job.

It presents operational results of the

entire business.

10) It is an effective control device

Financial accounting is not a control

device. Rather, accounting ratios can
be computed with financial accounting.

11) Unit wise accounting is also prepared.

Monetary units alone are yardstick of

financial accounting.

Bring out the difference between financial and management accounting.

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Cost Accounting

There are two broad types of accounting information:

Financial Accounts: It is geared toward external users of accounting information
Management accounts: It aims more at internal users of accounting information
Although there is a difference in the type of information presented in financial and management
accounts, the underlying objective is the same - to satisfy the information needs of the user.

Financial Accounts

Management Accounts

Financial accounts describe the performance

of a business over a specific period and the
state of affairs at the end of that period.
The specific period is often referred to as
the Trading Period and is usually one year
long. The period-end date as the Balance
Sheet Date

Management accounts are used to help

management record, plan and control the
activities of a business and to assist in the
decision-making process. They can be
prepared for any period.

Companies that are incorporated under the There is no legal requirement to prepare
Companies Act 1956 are required by law to management accounts.
prepare and publish financial accounts. The
level of detail required in these accounts
reflects the size of the business with smaller
companies being required to prepare only
brief accounts.
The format of published financial accounts is
determined by several different regulatory
elements:
Company Law
Accounting Standards
Stock Exchange
Financial accounts concentrate on the
business as a whole rather than analysing
the component parts of the business. For
example, sales are aggregated to provide a
figure for total sales rather than publish a
detailed analysis of sales by product, market
etc.

There is no pre-determined format for

management accounts. They can be as
detailed or brief as management wishes.

Management accounts can focus on specific

areas of a business activities. For example,
they can provide insights into performance
of:
Products
Separate business locations (e.g. shops)
Departments / divisions

Most financial accounting information is of a Management accounts usually include a

monetary nature
variety of non-financial information. For
example, management accounts often
include analysis of:
- Employees (number, costs, productivity
etc.)
- Sales volumes (units sold etc.)
Customer transactions (e.g. number of
calls received into a call centre)
By definition, financial accounts present a
Management accounts largely focus on
historic perspective on the financial
analysing historical performance. However,
performance of the business
they also usually include some forwardlooking elements e.g. a sales budget; cashflow forecast
6.

Compare cost accounting with management accounting.

To manage a firm, the management requires lot of information. Such information must be
presented in an organised way. If it is in accounting form, the management can use it as a tool.
Management accounting is concerned with all such information that is useful to the

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Cost Accounting

management. The Institute of Cost and Management Accountants of England defines

management accounting as below:

It is a presentation of accounting information in such a way as to assist

management in the creation of policy and in the day-to-day operation of an

undertaking
Management accounting consists of some essential activities:
a) Estimation of cost is one of the basic tasks of management. If it is estimated, the
management will use the estimation in control process and planning decisions.
b) Controlling the cost is another function of management. Here the cost incurred is
compared with task performed. Corrective measures should be initiated when costs are
excessive.
c) Performance evaluation is another part of management accounting. Managers are often
monitored. Their performance should be consistent with the goals of the organisation.
For which, a comprehensive reporting system is required.
d) It supplies information to the management for planning and decision-making.
The main emphasis in cost accounting is on cost control and cost determination. Whereas the
management accounting uses the principles and practices of financial accounting and costing
accounting in addition to other managerial techniques for effective management. The examples
of these techniques are standard costing, budgetary control, uniform costing and inter-firm
costing, marginal costing, flow analysis, ratio analysis etc., Therefore, the management
accounting is an all inclusive package. It is an application of managerial aspect of cost
accounting.
7.

List the advantages of cost accounting.

An effective and organised system of costing may have the following advantages:
e) Providing information to the insiders and outsiders with respect to production, cost,
materials, labour, stores, plant capacity etc., which assist out planning
f) Revealing profitable and unprofitable activities which help the management to reduce
or eliminate wasteages and inefficiencies such as under utilization, idle time, spoilage
of material etc.,
g) Systematic management of cost which will lead to effective product pricing.
h) Maintaining perpetual inventory system, this ensures preparation of interim profit and
loss account.
i) Aiding in formulation of policies related to product, price etc.,
j) Comparison of cost between different periods, products, departments or firms.
k) Revealing idle capacity, this would help the management to deal bottlenecks.
l) Ascertainment of cost and profit more frequently and examination of their causes in
details.
m) Taking decisions based on facts and formulation of suitable polices for various matters.
(Level of output, make or buy decision, replacement of old equipment, shut down or
continue, introduction of new products or elimination, acceptance of a special order
and replacement of labour with machinery.)
The use of cost accounting is no more restricted to manufacturing organisations. It is used
by other organisatios too banks, educational institutions, hospitals, local governments so on.

8.

What are the limitations of cost accounting?

Cost Accounting suffers from certain inherent limitations.
i)

There is not standard set of rules and regulations of cost accounting applicable to all
industries and even the firms in the same industry.

CA Pallav Shah
ii)
iii)

The cost accounting principles themselves keep on changing.

There are widely recognised cost concepts but understood and applied differently by
different concerns.
Cost accounting is not an exact science and its postulates cannot be verified by
controlled experiment, but only by application in actual practice.

iv)

9.

Cost Accounting

What are ascertainment costs? How does it differ from cost estimation?
Cost Ascertainment:
Cost ascertainment is related to computation of actual costs incurred. It means the methods and
process employed in ascertaining costs. Different methods are employed for ascertaining cost in
different organisations. Job costing, contract costing, batch costing, process costing, unit
costing and multiple costing are some methods. (Refer the method of costing). Each method is
chosen according to its suitability with the organisation concerned.
The ascertainment of actual cost has a small impact because of the following possible reasons:
n) Actual cost cannot be used for the purpose of price quotations and filing tenders.
o) Actual cost has practically no utility for control purposes.
p) Actual cost is ineffective as means of measuring performance efficiency.
Ascertainment of actual costs proves to be important though there are limitations as shown
above. Ascertainment of actual costs tells us unprofitable activities and losses and inefficiencies
occurring in the form idle time, excessive scrap etc.,
Uses of Cost Estimation:
Cost estimation is the process of predetermined costs of products or services. The costs are
prepared in advance of production and precede the operations. Estimated costs are definitely
the future costs. They are based on the average of the past actual costs adjusted for anticipated
changes in future. The following are the uses of cost estimation:
I. Cost estimates are used in making price quotations and bidding for contracts
II. they are used in the preparations of budgets
III. it helps in evaluating performance
IV. Projected financial statements are prepared with the help of such estimations
V. It serves as targets in contoling costs

10.

What is cost centre? How is it identified? List its uses.

Cost is generally ascertained by cost centres. Let us understand about cost centre.
A cost centre is a location, person or item of equipment (or group of these) for
which costs may be ascertained and used for the purposes of cost control.
(I.C.M.A. London)
The entire organisation may be divided into specified cost centres, which jointly contribute to
the total cost. A cost centre is primarily identified in two major ways. They are
q) Personal cost centre: It consists of a person or a group of persons.
r)

Impersonal cost centre: It consists of a location or an item of equipment or group of

these.

Identification and establishments of cost centres depend on the nature and type of industry.
Cost centres may be of the following types.
I. Process cost centre (based on sequence of operation)
II. Production cost centre(for regular production in a shop)

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Cost Accounting
III. Operation cost centre(where various operations are involved in the production
process)
IV. Service cost centre(for activities supporting the main production)

Identification and establishment of cost centres help us in

i)
ascertaining the centre-wise costs,
ii)
comparing the centre-wise costs periodically,
iii)
finding out the major trends of variance,
iv)
applying the techniques of control to check undue, undesirable or
unexpected movements in costs.
The concept of costing by cost centres may be applied to almost any industry. The number
cost centres and the size of each vary from one undertaking to another. The main purpose
identification of cost centres is to fix responsibilities for every cost centres. A large number
cost centres tend to be expensive but having too few cost centres defeat the very purpose
control.
11.

of
of
of
of

Describe about cost unit.

The cost centres help in ascertaining the costs by location, equipment or person. Cost unit is an
extension of identification of cost centres. Cost unit helps in breaking up the cost into smaller
sub-divisions. It also facilitates in ascertaining the cost of saleable product or services.
According to I.C.M.A. London
A cost unit is a unit of product, service or time in relation to which cost
may be ascertained or expressed
Cost units are the things that the business is setup to provide of which cost is ascertained. Cost
units will normally be the quantity of a product for which price is quoted to the customers.
Cost units may
V.
VI.
VII.
VIII.
IX.

be:
unit of product (e.g., cost per book)
unit of time (e.g., cost of generating electricity per hour)
unit of weight (e.g., cost per kilogram of sugar)
unit of measurement (e.g., cost per square foot of construction)
operating unit of service (e.g., cost of running a car per kilometre)

Selection of a cost unit must be appropriate. Convenience is the first criterion. Secondly, it
should be easier to correlate expenses with cost units. Thirdly, it should be according to the
nature and practice of the business.
A few more examples of cost units in various industries are given:
Industry
Cars
Cement
Chemicals
Bricks
Shoes
Electricity
Transport
Automobile
Printing Press
Mines
Carpets
Hotel
12.

Cost Unit
Per Car
Tonne
Tonne, kilogram, litre, gallon etc
1,000 bricks
Pair or dozen pairs
Kilowatt hour
Passenger Kilometre
Number
Thousand copies
Tonne
Square yard
Room per day

Explain the components of total cost?

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Cost Accounting

The total cost comprises of direct costs (also known as prime cost) and indirect costs (known as
overheads). The prime cost consists of direct materials, direct labour and other direct expenses.
Overhead consists of factory overheads, office overheads, and selling and distribution
overheads.
Mechanism of Cost Build Up
Prime Cost

Direct Material

Direct Labour

Works Cost

Prime Cost

Factory Overhead

Cost of Production =

Works Cost

Office And Administrative Overhead

Total Cost

Cost of Production

Selling And Distribution Overhead

13.

Direct Expenses

What are the various elements of cost?

There are three elements of Cost
a) Materials:
The word Materials refers to those commodities, which are used as raw materials,
components, or consumables for manufacturing product. Materials can be direct or
indirect.
Direct materials: All materials used as raw-materials or components for a finished
product are known as direct materials. Cotton for textiles, tyres for car are few
examples of direct material. It also includes package material.
Indirect Materials: Consumable like lubricating oil, spare parts for machinery are called
as indirect materials. Such commodities do not form part of the finished product.
b) Labour
The workers are involved in converting raw material into finished goods. Such
involvement of workers forms the word labour. The reward given to them for their
involvement is called wages. Wages can be direct or indirect.
Direct Labour: The workers who are directly involved in the production of goods are
known as direct labour. The reward paid to them is called direct wages.
Indirect Labour: The workers employed for carrying out tasks incidental to production
of goods or those engaged for office work and selling and distribution activities are
known as indirect labour. The reward given to them is called indirect wages.
c) Expenses
All expenditures other than material and labour are termed as expenses. Expenses can
also be direct or indirect.
Direct Expenses: Other expenses, which are incurred specifically for a particular
product, job or processes, are termed as direct expenses. Some examples are given
below:

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Cost Accounting
Direct Expenses
Carriage Inwards
Production royalty
Hire Charges of special equipment
Cost of special drawings

Indirect Expenses: All expenses other than indirect materials and labour which cannot
be directly attributed to a particular product, job or service are termed as indirect
expenses. Some examples are given below:
Indirect Expenses:
Rent of building,
Repair of Machinery
Lighting and heating
Insurance
Concept of Overhead: All material, labour and expenses, which cannot be identified as
direct costs, are termed as indirect costs. The three elements of indirect costs namely
indirect materials, indirect labour and indirect expenses are collectively known as
Overheads or On costs. Overheads are grouped into three categories:
a. factory (or manufacturing) overheads,
b. office (or administrative) overheads, and
c. selling and distribution overheads
Conversion Cost: The cost of converting raw materials into finished goods is termed as
conversion cost. It includes direct wages, direct expenses and factory overheads.
14.

How will you classify costs? Explain

Costs have been classified according to various bases.
I. Classification based on functions
This is a traditional classification. The cost may have to be ascertained according to the
functions carried out by the organisation. The functions generally are manufacturing,
administration, selling, distribution and research.
Manufacturing Costs refer to all expenditure incurred in the course of production from
purchasing of materials to packing of the finished goods.
Manufacturing Costs
Material
Labour
Factory Rent
Depreciation
Power & Lighting
Insurance
Store Keeping
Administration Costs are incurred for general administration of the organisation and for
the operational control.
Administration Costs
Accounts office expenses
Legal charges
Audit charges
Office Rent
Remuneration to Director
Postage Expenses

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Cost Accounting

Selling Costs are incurred to create and stimulate the demand and to secure the
demand
Selling Costs
Salaries
Commission to Salesmen
Advertising and promotion Expenses
Samples
Travelling Expenses

Distribution Costs are incurred on dispatch of the finished goods to customer including
transportation.
Distribution Costs
Packaging costs
Warehousing Costs
Carriage outwards
Insurance
Upkeep of Vans
II. Classification based on Variability or behaviour
Costs have a definite relationship with the volume of production. They behave
differently when volume of production rises or falls. On this basis, costs are classified
into fixed cost, variable costs and semi-variable (semi-fixed) costs.
Fixed Cost: Costs, which remain unaffected by changes in volume of production, are
called as fixed Costs. For example, the rent and managers salary will not change
when you increase the units of production from 1000 to 1200.
Fixed Costs
Rent lease
Salary to Managers
Building Insurance
Salary and Wages
Taxes to local authority
Variable Cost: The cost that tends to vary in direct proportion to the volume of
production is called variable cost. For example, for 1000 units of output, cost of raw
materials consumed comes to Rs. 10,000. If the production is increased to 1200 units
(20%) the cost of material will increase to Rs.12,000 (increase of 20%).
Variable costs
Direct Material
Direct Labour
Power
Commission of Salesmen
Royalties
Semi-variable Costs: Costs, which increase or decrease with a change in volume of
production but not in the same proportion as the change in the volume of production
are called semi-variable costs.

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Cost Accounting
Semi-variable Costs
Supervision
Repairs
Maintenance
Telephone Charges
Light and Power
Depreciation

III. Classification according to their identifiability with Cost units:

Costs are classified into direct and indirect based on their identifiability with cost units
and jobs or processes:
Direct Cost: It refers to expenses, which can be directly identified with the product, job
or process. For example, in case of materials used and labour employed we can easily
ascertain as to which product or job or process they relate.
Indirect Cost: It refers to those expenses, which cannot be easily identified with a
particular product, job or process. These are general, common or collective nature,
which are to be allocated to various products manufactured in the factory. Few
examples are: wages paid to night watchman, salary to the production manager.
IV. Classification based on their association with product or period.
Product Costs: These are those costs, which are necessary for production and which will
not be incurred if there is no production. Direct material, direct wages and some of the
factory overheads are examples of this kind.
Period Costs: Costs, which are not necessary for production and are written off as
expenses in the period in which these are incurred are called period costs. Rent, salaries
of company executives, travelling expenses are some examples of period costs.
V. Classification based on their controllability :
Controllable Costs: These are the costs, which may be directly regulated at a given
level of authority. Variable costs are generally controllable by department heads.
Uncontrollable Costs: Costs, which cannot be influenced by the action of a specified
member of an organisation, are called uncontrollable costs. Factory rent is a good
example.
15.

Explain different methods of costing.

The methods of costing refer to the techniques and processes employed in the ascertainment of
costs. Many methods have been designed to suit the needs of different industries. These
methods can be summarised as follows:
It should be noted that two basic methods of costing are (1) Job costing, and (2) Process
Costing. The other methods discussed below are simply variants of these two methods.
Job Costing:
Under this method, costs are ascertained for each job separately. According to I.C.M.A London
The method of job order costing applies where work is undertaken to be a job
or work

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Cost Accounting

It is suitable for industries like car repairs, printing, foundries, painting and interior designing,
where each job has its own specification.
Contract Costing:
This method is used in case of big jobs described as contracts. Since this is a variation of job
costing, the principles of job costing are in general applied. The contract work usually involves
heavy expenditure, spreaded over a long period. Each contract is treated as a separate unit for
the purpose of cost ascertainment. Shipbuilding, construction of premises, roads and bridges are
few examples suitable for contract costing.
Batch Costing:
This is also another version of job costing. The cost of batch or group of uniform products is
ascertained under this method. Each batch of products is a unit of cost for which costs are
accumulated. It is generally used in industries like pharmaceuticals, readymade garments,
shoes, toys, bicycle parts, bakery, etc.
Process costing:
A product passes through various stages of production called process in some industries. Each
process is different and well defined. The output of one process is used as a raw material for
the next process. Costs are accumulated for each process. To arrive at the unit cost, the total
cost of the process is divided by the number of units. Textile mills, chemical works, sugar mills
and food products may be cited as examples of industries which use this method.
Operating Costing:
This method is used in undertakings, which provide services instead of manufacturing products.
The unit cost is a service unit e.g., in case of buses, the unit of cost is passenger kilometer, and
in case of nursing home, it is per bed per day. It is also called service costing.
Multiple costing:
This method is an application of more than one method of cost ascertainment in respect of the
same product. Where a produce comprises many assembled parts as in case of motor car,
typewriter etc., costs have to be ascertained for each component as well as for the finished
product. This may involve use of different methods of costing for different component. It is,
therefore, called multiple or composite costing.
Single, output or unit costing:
This method of cost ascertainment is used when production is uniform and consists of a single or
two or three varieties of the same product. Where the product is produced in different grades,
costs are ascertained gradewise. Since the units of output are identical, the cost per unit is
found by dividing the total cost by the number of units produced. This method is used in mines,
brick-kilns, steel production, floor mills, etc.
16.

Describe the types of costing.

Method of costing refers to the process and practice of ascertaining costs of product and
services. The type of costing refers to the technique of analysing and presenting costs for the
purpose of control and managerial decisions. The types of costing also known as techniques of
costing generally used are as follows:
Marginal costing:

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Cost Accounting

Separation of costs into fixed and variable (marginal) is of special interest and importance.
Under marginal costing, cost of a product is estimated with out considering fixed cost. This
method allocates only variable costs (direct material, direct labour, direct expenses, and
variable overheads) to production. It is also known as variable costing.
Absorption costing:
It refers to the conventional technique of costing under which the total costs (fixed and
variable) are charged to products. It is considered to have only a limited application today.
Historical Costing:
It refers to a system of cost accounting under which costs are ascertained only after they have
been incurred. The accounting is done in terms of actual costs and not in terms of
predetermined costs. It is widely applied by many organisations today.
Standard Costing:
This technique connotes the setting up of definite standards of performance in advance. These
standards are expressed in monetary terms. Actual performance is measured against these
standards. The differences are helping the management to initiate corrective actions. This is
believed to be a valuable tool in cost control.
Budgetary Control:
A budget is an estimated results expressed in numerical numbers. Budgetary control is a
technique applied to the control of total expenditure on materials, wages and overhead by
comparing actual performance with planned performance. This technique is also believed to be
another valuable aid in cost control and coordination.
17.

What are the preliminaries that are to be satisfied before installation of a cost system?
There cannot be a ready-made costing system for every organisation. In view of growing size and
variety of organisations, a single system of costing cannot suit every business. The installation of
a costing system requires a thorough study and understanding of all the aspects involved.
Otherwise the system may be a misfit and the organisation may not be able to derive full
advantage from it. In other words, it is only a properly designed system of costing suitable to
the undertaking, which can help its successful operations.
The cost benefit analysis should be initiated to install a costing system. The benefit of
establishing cost system must exceed the amount spent on it. The system should be justified
because of its value to management.
Problem Areas:
The organisation must be aware of the difficulties in introducing the system of costing. The
following are some difficulties
i)
Inadequate support from top management,
ii)
Resistance to change from staff involved in the operation of the financial accounting,
iii)
Resentment at other levels in view of the additional work expected due to the costing
system,
iv)
Shortage of trained and qualified staff to handle the new system,
v)
Heavy costs involved in the process of installation.
Factors to be considered:
The following factors should be considered before installation of a system of costing:
i)
ii)
iii)
iv)

Objective of the costing system

Nature of business
Quality of the management
Size and type of organisation, scope of authority, sources of information and reports to
be submitted

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v)
vi)
vii)

Cost Accounting

Technical aspect of the business

Attitude and behaviour of the staff in extending co-operation to the system and the
organisation
Impact of different operations on variable expenses

Steps Involved in Installing a Costing System:

i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
18.

Management conducts a preliminary investigation. For example, the nature of product

and methods of production will help them to identify the right cost system.
The organisation structure should be studied to ascertain the scope of authority of each
executive.
The system of material procurement, issue and storage should be examined and changed
as per the requirements.
Method of remuneration to the labour should be altered to the new system of
remuneration.
Accounting system should be designed in such a way to involve minimum clerical labour
and expenditure.
The layout of the factory should be studied.
Costing system should be simple and easy to operate.
The installation and operation of the system should be economical.
The system should be initiated gradually.

What is cost sheet? Explain the components of cost Sheet with an example.
A Cost Sheet is a presentation of cost data incorporating its various components in a systematic
way.
Cost Sheet or a cost statement is a document which provides for
the assembly of the detailed cost of a cost centre or cost unit
In other words, a Cost Sheet is a statement consisting of various components of total cost. It is
used as a guide to pricing decisions and a basis for cost control. It should be prepared properly.
It is presented to the management at regular intervals.
A cost sheet serves the following purposes:
d) it gives the break-up of total cost by elements and sub-divisions
e) it discloses total cost as well as the cost per unit
f) it helps the management to compare costs
g) it facilitates preparation of cost estimates for submission of tenders
h) it helps the fixation of selling price
i) it also facilitates cost control by disclosing operational efficiency.
The following are some important components incorporated in the Cost Sheet.

Name of the cost centre

Period of Preparation
Output for the period
Details of various cost components of total cost
Item-wise cost per unit
Changes in stock position
Cost of sales
Profit or loss status

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Cost Accounting
COST SHEET FORMAT

Particulars
Opening Stock of Raw Material
Add: Purchase of Raw materials
Add: Purchase Expenses
Less: Closing stock of Raw Materials
Raw Materials Consumed
Direct Wages (Labour)
Direct Charges
Prime cost (1)
Add :- Factory Over Heads:
Factory Rent
Factory Power
Indirect Material
IndirectWages
Supervisor Salary
Factory Insurance
Factory Asset Depreciation
Works cost Incurred
Add: Opening Stock of WIP
Less: Closing Stock of WIP
Works cost (2)
Add:- Administration Over Heads:Office Rent
Asset Depreciation
General Charges
Audit Fees
Bank Charges
Counting house Salary
Other Office Expenses
Cost of Production (3)
Add: Opening stock of Finished Goods
Less: Closing stock of Finished Goods
Cost of Goods Sold
Add:- Selling and Distribution OH:Sales man Commission
Sales man salary
Traveling Expenses
Advertisement
Delivery man expenses
Sales Tax
Bad Debts
Cost of Sales (5)
Profit (balancing figure)
Sales

Amount Amount
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